Solution to high power prices elusive
Few things in modern life are more important than electricity. Its pricing has a heavy impact on household budgets and it is a major influence on the strength of the economy. It is only fair to households that power prices are no higher than they need to be, and vital for the economy that prices are no higher — or lower — than the supply and demand can set. But in the 20 years since electricity prices were set by a market, the design of that market has been a work in progress. It still is.
An independent review set up by the present Government produced a report yesterday suggesting a number of improvements. None of them go as far as small retailers of electricity probably hoped. The review panel has not suggested anything as drastic as the break-up of the big “gentailers” into separate generating and retailing companies. It merely suggests they be required to disclose their profits from generating and retailing separately. That might go some way to ensuring they are not using wholesale charges to subsidise their retail offerings, undercutting competitors who have little or no generation of their own and must pay those wholesale charges.
The smaller retailers have been complaining that when they win customers from one of the big companies, it frequently comes back to the customer with a lower offer. The panel recommends such “win-back” offers be banned, which would be all to the good. While a few lucky customers might no longer get cheaper deals, it is in the interests of all customers that competition is not driven out of the market by tactics such as these. Obviously there would need to be a time limit on the protection from counter-offers. Perhaps all retail power contracts will have to be binding on both parties for an agreed term.
Fixed term contracts might also encourage more households to shop around, which surprisingly few do considering the high price of electricity. Perhaps the reason is that pricing is complicated or simply that they trust the big name suppliers more than those who come calling out of the blue. Or it may just be that the calls seldom find householders ready to review their power bill. A fixed term could focus their attention as its expiry date approaches.
The panel suggests a service be set up offering advice on budgeting, energy efficiency and switching. It would also prohibit discounts for prompt payment because households that struggle to pay the power bill pay more to cover the discounts for the better off. Companies will still be able to charge a penalty for late payment.
The underlying problem for retailers, though, are the spikes in wholesale prices that occur in periods like late last year when less power can be generated, because hydro lakes are low or another power source is out of commission. The panel’s answer is to require retailers to be given more information in these events but it is hard to see how information would help them when they find themselves selling power at less than they are having to pay for it. The quest for a solution continues.